Study 5 - Underwriting the Risk: Liability

Question 1

Define liability insurance

Answer 1

insurance that agrees to indemnify the insured for sums she may be required by law to pay to third parties as damages for bodily injury or damage to property. The maximum amount of insurance provided under a policy of liability insurance

Question 2

Define third-party insurance

Answer 2

liability insurance is purchased by the insured (first party) from an insurer (second part) to compensate or indemnify another (third party) for damage or loss for which the insured is lawfully liable

Question 3

What must a plaintiff review in a liability suit?

Answer 3

(The ABC Rule)

• Defendant owed the plaintiff (A) duty of care
• The defendant (B)roke that duty of care by his or her actions
• The defendant’s actions (C)aused injury to the plaintiff

Question 4

What three criteria must be met for an incident to become a loss under a liability policy?

Answer 4

• Third party must consider the injury serious enough to pursue a grievance
• The grievance must be difficult enough to resolve that they cannot settle out of court
• The resulting trial must end in favour of the third party

Question 5

Define statute law

Answer 5

A law set down in a government act and passed by legislature

Question 6

What are the three jurisdictions of law?

Answer 6

Federal
Provincial/territorial
Municipal

Question 7

What are some examples of what is covered under federal law?

Answer 7

Military affairs, foreign relations, the natuional currency, the postal service, financial regulation of banks and insurance companies, among others

Question 8

What are some examples of what is covered under provincial law?

Answer 8

Property rights, education, health care, and the regulation of the insurance industry

Question 9

What are some examples of what is covered under municipal law?

Answer 9

Police, fire, water and other services that municipalities are authorized to manage

Question 10

Define tort

Answer 10

A wrongful act that has caused damage or injury to another

may be:
intentional act
negligent act
failure to act

Question 11

Define negligence

Answer 11

Failure to use the degree of care expected from a prudent person

Question 12

Define duty of care

Answer 12

The obligation that a person has to exercise reasonable care with respect to the interests of others, including protecting them from harm

Question 13

What case was responsible for establishing the duty of care definition?

Answer 13

Arland v. Taylor

Question 14

The ABC rule

Answer 14

A duty of care exists
The duty was breached
There is a causal relationship between the breach and the damage

Question 15

Define hold-harmless agreement

Answer 15

an agreement that allows one party to protect another party against any future losses or claims that may result from a particular activity. also known as indemnity agreement

Question 16

Define indemnity agreement

Answer 16

a written contract entered into between the indemnitor and surety in which the indemnitor secures surety against loss the surety may sustain as a result of having issued a bond for a third party (usually a company owed by the indemnitor) or for the indemnitor

Question 17

What are some maintenance and housekeeping questions you may ask?

Answer 17

What is the general condition of the building and grounds?
How well maintained are the parking lots, stairs, walkways and floors?
What is the condition of interior and exterior lighting? Is it adequate?
What is the condition of exit lights, emergency exits, and doors?
Are non-slip surfaces used in areas of high pedestrian volume?
What are the cleanup procedures? Are cleanup records or logs appropriate, and if so, are they available?
How well is the property drained? Is the drainage adequate to avoid water ponding and icing?
Are warning signs posted in hazardous areas?

Question 18

What are some additional items to review for maintenance and housekeeping?

Answer 18

1) Does the applicant have a maintenance contract?
2) If the applicant has a maintenance contract, does it include a hold-harmless or indemnity agreement?
3) Does the lease impose obligations on the applicant concerning property maintenance?

Question 19

What was the relevance of Preston v. Canadian Legion (1981)?

Answer 19

Parking lot was unpaved and unlit, snow removal services were in place, temperature warmed and icy conditions resulted, occupier did not modify procedures; occupier failed in its duty

Question 20

What are the general steps to review for premises liability?

Answer 20

• Know the exposure, the occupancy and the applicant’s activities
• Understand the legal requirements in the jurisdiction where the risk is located
• Review the risk’s loss history
• Review the loss control reports
• Follow up on any recommendations outstanding from those loss control reports
• Find out whether the applicant keeps records of incidents or accidents, maintenance logs, and records of routine inspections
• Find out what contracts the applicant is party to and ask if the applicant obtains certificates of insurance from its contractors
• Understand who any additional named insureds on the application are and what their relationships are to the applicant
• Find out if the applicant is name as an additional insured on other policies, such as a contractors policy

Question 21

What are some general details to review for products liability?

Answer 21

• Name and address of risk
• Number of years in business
• Its payroll, receipts and other measures of its financial well-being

Question 22

What are some specific points to consider for products liability?

Answer 22

• Who manufacturers the products that the applicant sells?
• What products does the applicant manufacture? What is the final use of the product?
• Does the applicant modify or alter products received from other manufacturers before selling them?
• What is the distribution of the applicant’s products? Local, national, international? To the United States?
• Do any of the applicant’s products contain parts or materials manufactured by another company? If so, is the other company located inside of outside Canada?
• Are any of the products flammable, explosive or toxic with normal use?
• Can the consumer or end-user alter the products? Are safety devices in place to prevent this? Warnings?
• Do the products carry a warranty or an express guarantee of performance or other aspects of the products? Does the applicant install or maintain product?
• Has any product been discontinued or recalled? Why?
• Are the instruction manuals provided to consumers to indicate the correct use?
• What quality-control process has the risk implemented? Are written records kept? Are they certified by ULC or CSA?
• Does the applicant have a hold-harmless agreement?
• Does the applicant already have liability insurance?
• Has the applicant had to make a claim on existing insurance?

Question 23

Define employers liability insurance

Answer 23

Coverage for the legal liability imposed on an employer to pay damages to an employee injured by the employer’s negligence. This is not workers’ compensation insurance, where special acts of legislature set out specifically the relationship between the employer and employee in certain cirumstances

Question 24

What are three circumstances in which an employer may need liability even if the employee is eligible for workers comp?

Answer 24

• Working outside the jurisdiction
• If employer assumed certain liabilities under contract
• If workers compensation benefits are denied because injury was not incurred on the job

Question 25

Define contributory negligence

Answer 25

Many accidents are the partial fault of both parties who are involved in the accident. The plaintiff who sues another party for damages may also be guilty of some negligence, which is a concurrent cause of the damage, and is therefore guilty of contributory negligence

Question 26

What are some questions an underwriter would want to know about a dwelling with a swimming pool?

Answer 26

Swimming pool? Deck? Diving board? How deep? Fenced and locked? Supervised? Entertain guests? Child visitors? Properly chlorinated and maintained? Lifesaving equipment?

Question 27

Define umbrella policy

Answer 27

A special form of liability policy designed to protect the insured for certain unknown contingencies over and above coverage and to provide excess insurance

Question 28

What are the three main benefits of an umbrella policy?

Answer 28

• Limits of insurance in excess of primary
• Down down coverage to cover exposures that primary policy does not
• Territorial limits wide than primary policy

Question 29

What might drop-down coverage provide in an umbrella policy?

Answer 29

• Broader premises liability coverage
• Excess auto liability coverage
• Coverage for liability from watercraft and non-own aircract
• Coverage of the policyholder’s employer liability

Question 30

A doctor applies for insurance. She lives on a 200-acre farm and rents the land to a cattle farmer. The
applicant and her husband own two automobiles, a cottage, and a motorboat. Give FIVE (5) reasons
why the applicant should purchase an umbrella policy.

Answer 30

• An umbrella policy will help protect the insured for certain unknown contingencies over
and above coverages and to provide excess insurance
• Society is litigious, and as a doctor, the insured is likely to be sued for a large amount of money
• With the assets that the doctor has—farm, automobiles, cottage, motorboat, and the fact that she rents her farmland—the coverage that an umbrella policy will offer would be the most beneficial to the insured
• The personal umbrella policy may expand the insured’s liability coverage by dropping down to provide coverage that would not otherwise be available to the insured under just an ordinary personal liability policy
• The broader coverage might include excess
automobile liability coverage, employers liability coverage, broader premises liability coverage

Question 31

How is governmental power in Canada divided? What are the responsibilities assigned to each level
of government?

Answer 31

• Divided by the Constitution Act
• Between the federal, provincial and territorial, and municipal governments
• Federal: Military affairs, foreign relations, the national currency, the postal service, financial regulation of banks and insurance companies, etc.
• Provincial and territorial: Property rights, education, health care, regulation of the insurance industry, etc.
• Municipal: Police, fire, water, and other services that municipalities are authorized by provincial governments to provide or perform within their boundaries

Question 32

What is the primary intention of the commercial general liability policy? What must the plaintiff prove?

Answer 32

• Primarily intended to protect the insured from legal liability for unintentionally caused bodily injury or property damage to other people
• The plaintiff must prove
o the defendant owed the plaintiff a duty of care
o the defendant broke that duty of care by his or her actions
o the defendant’s actions caused injury to the plaintiff

Question 33

What questions can be asked to analyze premises liability?

Answer 33

• Is the risk a good fire risk?
• What is the general condition of the building and the grounds?
• How well maintained is the parking lot?
• Are there any stairs or walkways?
• What is the condition of the retail store’s exit lights, emergency exits, and doors?
• Is there non-slip flooring to help prevent slip-and-fall accidents?
• Is the property drained well enough to avoid water pooling and icing?
• Are there hazardous areas? Are warning signs posted?
• What contracts does the applicant have in relation to the premises?
• Do the contracts have hold-harmless agreements?
• If the applicant doesn’t own the premises, is there a lease and does the client have any
obligation to maintain the property under the lease?
• What is the applicant’s loss history?
• Does the applicant meet the legal requirements in the jurisdiction?
• Is the applicant an additional insured on other people’s policies?
• Are there any additional named insureds on the client’s application? Who are they, and
what relationship do they have with the insured?
• Does the applicant keep a record of incidents or accidents?
• Does the applicant keep maintenance records and records of routine inspections?
• Has the applicant assumed liability for other persons under a contract?

Question 34

What duty is owed to a trespasser?

Answer 34

• An occupier owes the lowest duty of care to a trespasser

* The occupier must treat the trespasser with common humanity

Question 35

What factors involve if a duty of care to a trespasser has been breached?

Answer 35

• The gravity and likelihood of probable injury
• The character of the intrusion or trespass
• The nature of the premises trespassed upon
• The knowledge the occupier had or ought to have had of the likelihood of a trespasser’s presence
• The cost to the occupier of preventing harm to the trespasser

Question 36

Why should one carry employers liability insurance?

Answer 36

• Employers liability insurance is coverage for the legal liability imposed on an employer to pay damages to an employee injured by the employer’s negligence
• In this case, the constant renovations and movement of displays could present injury to the employees
• An employee is eligible for workers’ compensation insurance if an employee is working outside the jurisdiction for a certain period of time or longer
o If the employer has assumed certain liabilities under contract
o If workers’ compensation insurance benefits are denied to an injured worker because the injury was not incurred on the job